Are You Getting Good Advice?
By: Dan Cassidy
Pension plan sponsors depend on multiple professionals to help them manage their plans. Dan Cassidy, of Argus Consulting Ltd., suggests developing a solid criteria for evaluating the advice you are getting about your pension plan can help it survive hard times and grow in good ones.
Are you getting good advice? Do you trust the advice you’re given about your employee retirement plan? Do you understand it?
If your CFO asks, “How’s the plan going?” can you confidently give an answer? Do you have solid criteria for insuring that benefits advisors/consultants are educating in-house benefits managers properly? Do you use a checklist which your benefits planners can follow to keep company retirement plans in good health? Awareness of these issues enables employee retirement plans to survive hard times and grow when times are good.
A little background: Retirement plan sponsors rely on multiple professionals to effectively manage their plans including lawyers, actuaries, plan administrators, auditors, and investment professionals. With so many people and firms involved, many plan sponsors wonder if too many ‘cooks’ spoil the soup.
Benefit consultants and actuaries typically observe both competent and incompetent service. This means plan sponsors need to evaluate the effectiveness of their advisors and make sure they work well together.
Some criteria to consider, in terms of a checklist, include:
Evaluating good advice:
- Are you comfortable with the process? Is it clear to you how things will proceed?
- Is communication at a clear and freeflowing level?
- Do you understand the fee structure?
- What will be the effect of bundling on service providers?
- Are areas of overlap well-defined for each service provider?
- What’s the level of involvement by the plan sponsor?
- Who is the lead professional in this project? How much autonomy has been delegated versus command and control by upper management?
- Do you have appropriate professionals in place for work on plan documents – lawyers, actuaries, and a plan administrator?
- Do you have appropriate professionals in place for work on the trust agreement such as lawyers, auditors, and custodian/ trustees?
- Do you have appropriate professionals in place for work on investment management – investment managers, consultants, and actuaries?
- Do you have appropriate professionals in place for work on the audit including an auditor and actuary?
- Do you have appropriate professionals in place for work on plan amendments such as lawyers, actuaries, and an administrator?
Common Service Skills:
- Is everyone communicating well?
- Is everyone at the requisite level of technical competence?
- Is everyone acting professionally?
- Are things moving at a timely pace?
- Is everyone appropriately ‘business-focused?’
The trend in today’s marketplace is to ‘bundle’ multiple retirement plan services together. While plan sponsors look at the possible cost savings, streamlined administration, and other goals achieved by bundling, issues surrounding professional service providers are often ignored. Questions to ask include independence, quality of advice, and client focus.
From the perspective of actuaries, professional standards require that an actuary’s clients be provided with advice solely in the interest of the client in question. Therefore, actuaries become very used to walking a fine line between giving advice to the plan sponsor/employer and providing enrolled actuarial services to the plan itself.
For example, consultants can help clients analyze possible plan design changes (including cutting back future benefits) which is a plan sponsor function. However, the consultants can also help the client implement the final selected plan design including calculating the necessary funding charges, an enrolled actuary function. When service providers bundle multiple services together – for example, offering actuarial, investment, trustee, and administrative services for a Defined Benefit plan – the possibility of conflicts of interest becoming a problem increases.
An example of this might be that while examining whether to terminate a DB plan, a logical first step would be to work with your actuary to determine the cost impact and alternative Defined Contribution plan designs. With a bundled service approach, your actuary may be compensated through the assets of the plan. If the decision is to terminate the plan, there would be fewer assets under management. The actuary’s boss would not be happy with this decision!
Most actuaries feel compelled to discuss this alternative with their clients even if it means a loss of income for their employer. As the plan sponsor, you have two courses of action: either get very comfortable that the bundled provider’s actuary will give you appropriate advice or hire an outside, independent actuary to assist you with this decision.
Evaluating whether or not you are getting good advice often spells the difference between success or failure when it comes to management of your company’s retirement plans. Don’t get caught with major problems after the fact by ignoring this valuable first step. The well-being of your entire company, especially its workforce, depends upon it.
Dan Cassidy is president of Argus Consulting Ltd.
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